Friday, December 17, 2010

Best Investment Options for 2011

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Checkout Best Investment Options for 2012 here!

If 2009 was the year of the stock market, 2010 was the year of the real estate market - especially the residential real estate market segment. Investors have got almost 50 - 100 % returns in residential real estate market if they invested in late 2009. On the other hand, in 2010, stock market gave a return of 18%, gold gave a return of 30% and fixed income asset class gave a poor return of  6-12%. Please note that 2010 was a year of high inflation bordering between single digit and double digit inflation. So, for low and middle income investors, the time was tough if they stuck their money in bank fixed deposits (which gave a return of just 6% compared to some company fixed deposits which gave a return of upto 12%) and did not take risks in Stock Market, Gold, Mutual funds or the real estate asset classes, which typically are favorite of high net worth investors. So, the rich got richer and the divide between rich and poor increased further.

So, how does 2011 look for investors and which are the best asset classes to invest in 2011?

India's savings rate continues to be high, just behind China's. Also, NRIs continue to send money back home - either to their parents and relatives or for further investment. This is same as China and this is what is driving Gold and Real estate prices up in both the countries. Both the countries have taken steps to firm up interest rates to cool off real estate prices. So, we expect both Gold and Real estate to go up but may not give as high returns as last year. The world economies are getting more stabilized and the risk of double dip recession is almost gone. So, Gold which was used as a safe haven by many investors to hedge against inflation may have to think again about their approach. We expect Gold to stabilize in 2011.

Investors in Real Estate market are faced with a tough choice as the residential real estate prices have gone above the roof already. Those who have not invested are faced with a dilemma of either waiting and seeing prices go up further or hope for RBI to intervene to cool off real estate prices. RBI had announced measures earlier this year which led to higher lending rates. Investors could look at commercial real estate segment as the prices have risen only marginally in 2010 and the rental rates are improving and is likely to improve further in 2011. Prices of plots and built up houses in Metros have doubled last year but the commercial office space or shops have risen by 10-20% only. The rentals will improve in 2011 as the world economies have stabilized. This will lead to expansion by a lot of companies in all sectors in India - which will require the office space for their employees. Please note that there is surplus in commercial office space as of now but the prices are firming up and we expect them to go up further in 2011. Invest in an asset class which is in rising curve and it will give good returns! NRIs could look at investing in both residential and commercial real estate segment if they investing with a long term horizon.

Many banks have increased their deposit rates. So, lot of banks are offering 9% for senior citizens now. We would advise a mix of bank fixed deposit, bonds like those of SBI and company fixed deposits for those investors interested in fixed income asset class. The mix ensures safety and fetches a higher return than just banking on bank fixed deposits.

Last, but most avidly watched asset class by investors - Stock Markets. FIIs continue to pump money to emerging markets - India included. India has to reduce the dependence on FII money and bank on inclusive growth more. This will have a far reaching consequence and make India's stock market a stable asset class for middle income households. FIIs have taken out money in December 2010 and we expect them to pump back money in the first two months of 2011. Stock Markets will continue to do well in 2011 but may not give as high returns as in 2009. It will probably give similar kind of returns as 2010 but investors should be cautious in investing in the right stock or else go for a mutual fund which will be managed by an experienced fund manager. Be on the lookout for some good IPOs as well as the likes of MOIL, Coal India, Gravita India gave handsome returns in 2010.

Best of luck with your investment plans for 2011 and watch out for more posts for recommendations in each asset classes on our website!
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1 comment:

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